Axel Springer

Cooperation and Partnership as Driving Forces behind Innovation and Success in Digital Business in Germany

German-Japanese Business Seminar: "Innovation Partnership in Digital Economy – Growth Opportunities in Düsseldorf and North Rhine-Westphalia” Tokyo, 13.9.2017

© Prof. Dr. Holger Ernst Chair of Technology and Innovation Management WHU – Otto Beisheim School of Management Burgplatz 2, 56179 Vallendar (Germany) Tel.: +49 261 6509-246 Fax: +49 261 6509-249 mailto: [email protected] URL: www.whu.edu/tim Agenda

§ Digitization as a Disruptive Technology

§ Open Innovation Strategies in Disruptive Environments

§ How to Re-Invent the Firm in the Light of Digitization – The Case of Axel Springer

§ Summary

OLD World NEW World

Page 6 © Prof.. Dr. Holger Ernst 2016 Source: Financial Times, 13.01.16 GE‘s New Digital Strategy

”If you woke up as an industrial company today, you will wake up as a software and analytics company tomorrow.” (Jeff Immelt, CEO GE).

„A radical overhaul designed to transform the 123- year-old group into a digital industrial company. At its core is a drive to use advances in sensors, communications and data analytics to improve performance both for itself and its customers.“ (FT, 13.1.2016)

Digitization Strategies of the German Mittelstand (Industry 4.0)

Digital farming: „We are seeing many opportunities in electronics and software that weren‘t available five years ago“ (L. Kriszun, CEO)

• 300 software engineers (most important employees out of 11.000) • € 2m investment into satellite network to monitor and optimize farming • Apps. for farmers to operate harvesting machines

Source: Financial Times, 24.10.16 © Prof.. Dr. Holger Ernst 2016 Page 8 Agenda

§ Digitization as a Disruptive Technology

§ Open Innovation Strategies in Disruptive Environments

§ How to Re-Invent the Firm in the Light of Digitization – The Case of Axel Springer

§ Summary

The Open Innovation Model

Source: Chesbrough, H. W. (2003)

Objectives • Leverage external connections to produce highly profitable innovations • P&G CEO A. Lafley: 50% of all innovations should be acquired externally

Benefits

• 35% of new products in the market have elements from outside P&G • 45% of all initiatives in NPD have key elements that were discovered externally • R&D productivity increased by 60% • Innovation success rate more than doubled „Most companies are still clinging to a bricks-and- mortar R&D infrastructure and the idea that their • R&D investment went down from 4.8% in 2000 to 3.4% in 2006 innovation must principally reside within their own four walls.“ • Compared to 2000, share price Nabil Sakkab, VP R&D at P&G, 2002 doubled

Source: Sakkab (2002), Huston and Sakkab (2006), Drake et al. (2006). © Prof.. Dr. Holger Ernst 2016 Page 11 Some Key Advantages of Open Innovation

§ Access to new knowledge § Exploitation of synergies § Better access to markets § Reduction of development times § Reduction of development cost § Minimization of risks § Improved competitive position § Increased flexibility § Access to entrepreneurial talent § …

§ Meanwhile, BMW is aiming to produce fully self-driving cars – called iNext – by 2021 after entering a partnership with US computer chip group Intel and Israeli sensor maker Mobileye. § BMW declared it wanted to become the “number one in autonomous driving”, hence publicly confirming its ambition to dominate a technology that many believe will revolutionize the motor industry. § The collaboration comes as carmakers struggle with the complexity of engineering vehicles that can drive themselves. § BMW and its partners did not disclose the scale of their technology investment, although Intel said it was spending “several hundred million dollars” on the venture – indicating a budget approaching $1bn if the three companies share the costs. § Under the terms of their partnership, the companies remain free to pursue similar ventures with rival firms. Mobileye is already working with General Motors, Volkswagen and Nissan on mapping technology, while its sensors are also used by Tesla.

Source: Campbell, P. (2016). BMW sets 2021 goal for driverless cars. Financial Times, July 1st, 2016. ©Handelsblatt Prof.. Dr. Holger (June Ernst 30th, 2016 2016). BMW holt sich Verstärkung für selbstfahrende Autos. Page 13 Open Innovation by Aquisition: Corporate Venturing

BMW i VENTURES

§ Through a $310m fund, Toyota invests in 15 technology start-ups to keep pace with innovation in autonomous driving and incursions by tech rivals such as Google. § Mr Toyoda launched the fund in late 2015 with Shuhei Abe (CEO of Tokoy-based hedge fund Sparx) and Sumitomo Mitsui Banking Corp. § The fund comprises 19 investors and focuses on investments in tech companies ranging from car sharing, Artificial Intelligence, flat-panel satellite antennas to home robots and hydrogen-related technologies. § “The first priority for our investment is to find a company that has a technological edge. The key word is the new services that will emerge when everything becomes connected in the age of ʻinternet of thingsʼ” (Takaki Demichi, Sparx Asset Management) § Additionally, investing in the fund is part of an effort by Mr Toyoda to speed up decision-making at the company. § The fund has an investment span of up to 10 years with a target internal rate of return of 15 per cent.

Source: Inagaki, K., Financial Times (January 17, 2017). © Prof.. Dr. Holger Ernst 2016 Page 15 The Importance of Eco-Systems: NRW as a Leading Hub for Digital Technologies

§ Digitization as a Disruptive Technology

§ Open Innovation Strategies in Disruptive Environments

§ How to Re-Invent the Firm in the Light of Digitization – The Case of Axel Springer

§ Summary

Axel Springer SE is the leading digital publisher in Europe. The digital media channels already contribute nearly three quarters of total pro- forma revenues today.

Founded in Hamburg in 1946 (by Axel Springer)

Market leader in the German media business, but also active in more than 40 countries

3 business segments: informative and entertaining journalism, marketing and classifieds

Key facts (2016):

Employees 15.323 Total revenues € 3.290 million Operating profit (EBITDA) € 595 million Headquarters Berlin Listed on stock exchange Since 1985, since 2010 listed in the MDAX

„Europe‘s largest media house – “Springer is falling short, „... [the] chaotic a midget in the internet. when it comes to electronic Web-- Playground of At least they got a media!“ Axel-- Springer...“ strategy now.“

May 1999 May 2000 October 2000

"We want to be the winner of digitization in the European media business."

Mathias Döpfner, CEO Axel Springer SE since 2002

© Prof.. Dr. Holger Ernst 2016 Source: Dr. Julian Deutz, CFO, Axel Springer Page 22 "I will definitely not become tired to demand the participation on all existing electronic media platforms and even more on all new information systems still to come."

Axel Springer, October 1978

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Paid Models Marketing Models Classified Ad Models

For all segments: main activities only

Acquisitions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Organic growth Acquisitions > 80 Organic growth > 140 Info: Selection, cumulative figures Σ > 220

2016: 2.216 (67,4%) 2016: 431 (72,5%)

Digital revenue (in Mio. €) Digital EBITDA (in Mio. €)

1.610 365 H1 2015: H1 2015: 63% 1.329 75% 281 1.174 246 962

712 158

470 378 86 208 43 14 21 24 1

'06 '07 '08 '09 '10 '11 '12 '13 '14 '06 '07 '08 '09 '10 '11 '12 '13 '14

1% 53% <1% 72%

Info: IFRS figures might deviate slightly – adjusted for educational purposes

“Springer generates "Springers path is radical, “Döpfner nonetheless record with digital no doubt. But it is the right made clear [...] he’s not media.“ one." nearly done with his foray into the digital world.”

March 2013 August 2013 September 2015

§ Digitization as a Disruptive Technology

§ Open Innovation Strategies in Disruptive Environments

§ How to Re-Invent the Firm in the Light of Digitization – The Case of Axel Springer

§ Summary

§ Digitization is a disruptive force in almost any industry. § Firms need to radically change themselves, otherwise they fall behind or get even driven out of the market (no one is too big to fail). § Open innovation strategies are an important key to succeed in the era of digitization. § Engagement with start-ups is critical (incubation and corporate venturing) because this is often the only way to access great new ideas and to attract and retain entrepreneurial talent. § Eco-systems are key to success (support start-ups, partnerships, learning, networking, access to capital and critical resources; like in NRW)